For ten years Cyprus was aligning itself with European law to impose 19% VAT on land transactions for commercial activities, and the final law was passed on November 3, 2017 and followed the Dutch model in an effort to limit the cases of the VAT.
All the parties concerned are to study the final text of the bill as well as the relevant government regulations within a month. The main worry is how the market and the property values will be affected. There is also a call on the government to proceed with compensatory measures of a social nature.
Banks also have strong concerns about property values, which, in the event of their reduction – due to the imposition of VAT – will have a knock-on effect on bank collateral and possibly on the calculation of provisions with a potential impact on capital adequacy.
According to the final text of the law, from January 2, 2018, 19% VAT will be imposed in the following cases of land purchase and sale:
- When transferring a piece of land when it is a building land that is substantially undeveloped and when it is intended for the construction of one or more properties.
- When transferring a piece of land that does not have a land title, to land for which an application for building permit has been submitted, and on plots where there is no development and a building permit is in force.
The final text of the bill still contains certain ambiguities, which are expected to be clarified through a circular, which is to be prepared by the Department of Taxation.